Newbery Honor author Farmer (The Ear, the Eye and the Arm) here spins a medieval setting and a folktale-like aura into a winsome yarn. For years, the Runnerys' business has run like clockwork: Mrs. Runnery stores the farmers' grain in her stone granary, and Mr. Runnery's mill grinds it into flour. The family is puzzled when grain begins disappearing from the granary, and grows utterly perplexed when neither spiders nor cats can chase the mysterious intruders away. Toasting her toes by the fire, all-knowing Granny pinpoints the troublemakers as gnomes and offers a solution in frolicsome rhyme: ""Get hiccups and honey and hair./ Get money and marbles and meat./ Go out to the woods in the moonlight./ And glue the whole mess to a sheet."" Echoing the story's loose period setting and timeless good humor, Smith's (Matthew's Dragon) illustrations dovetail neatly with Farmer's text as both demonstrate how Granny's ""gnome paper"" captures the culprits. Rendered in watercolors and pencils, the full-page art portrays the Runnerys as a most ingratiating clan. And Smith's depiction of the greedy gnomes is just right: they're a wee bit scary, but not too much. Ages 5-up. (May)